Are we eligible for R&D tax credits?

How do I know if I would be eligible for R&D Tax Relief?

In the end, that’s what we make it our job to determine – with 100% accuracy so far. We can tell you how to rule certain businesses out though.

A business will not be eligible for R&D tax credits unless you can answer ‘yes’ to the following three questions:

Is the business a going concern?

Is the business incorporated?

Is the business subject to UK corporation tax? Note, the corporate partners of an LLP may still qualify)

If you did answer ‘yes’ to all 3, we can go on to the next step of the analysis.

Qualifying Activities

Does the business ever

manufacture products?

resolve technical problems with products?

develop new, improved, more efficient or more reliable products OR processes?

develop prototypes or models?

experiment with new materials, equipment or production techniques?

design custom machinery, tooling, dies, or moulds?

apply for patents?

develop custom software or implement new systems?

employ outside consultants or subcontractors?

If you answered no to every single one of those last questions, the business may not be eligible for R&D tax relief. It might still be worth our time to check, though. That list is not exhaustive, and we find very few businesses who really have zero R&D activity.

Assuming we got at least one ‘yes’, we go on to the next step.

Qualifying Projects

Not every project qualifies for R&D Tax Relief. To qualify, the project, or at least some part of it, must meet all three conditions below:

The project must involve some kind of scientific OR Technological advance.

This isn’t as difficult a hurdle as it may sound. A project will qualify if it either creates or makes ‘an appreciable improvement to’ any process, material device, product or service in such a way that it increases overall industry knowledge.

The project must be under some technical or scientific uncertainty.

Again, this isn’t an impossible standard. There just needs to be some risk that the project might not be achievable or even feasible. If a project could fail – in any way – the company was probably doing some kind of R&D. If a project DID fail for technical reasons, it is even more likely to qualify.

The solution must not be readily deducible.

If any competent professional could simply tell you the answer without doing any testing or research, the project won’t qualify.

Assuming again that we got 3 ‘yes’ answers, we go on to determine which costs qualify.

Eligible Costs

You can only claim for certain expenditures, even for a qualifying project at a qualifying company. Again, this is a matter of expertise, but we can illustrate the process. These are the general types of expenses which qualify:

Staff costs – This includes salaries, employer’s NIC and pension contributions, but not dividends.

Materials and consumables – This includes any heat, light, power or materials that are used up or transformed by the R&D process in making prototypes or running initial trials etc.

Subcontractors & externally provided workers

Some types of software used directly in R&D (CAD, for example)

Payments to the subjects of clinical trials

Does your industry qualify for R&D tax relief?

The short answer is ‘almost certainly yes’. No company should ever be ruled out because of the industry or industry sector they work in. If your business makes a product, hard or soft, it is worth having a discussion with us about your potential eligibility.